Western Digital Buying Stec for About $340 Million

Callie Bost

June 24, 2013, 5:05 PM EDT

Western Digital Corp., a maker of hard drives, plans to acquire STec Inc. for about $340 million in cash to expand its solid-state memory capabilities.

Western Digital agreed to pay $6.85 a share for STec, a 91 percent premium over the latter’s closing price on June 21, the companies said in statement. The deal has an enterprise value of about $207 million, net of STec’s cash as of March 31, the companies said.

Western Digital is looking to diversify beyond the Irvine, California-based company’s hard-drive roots as consumer demand for smartphones and tablets fuels a global slump in personal-computer sales. Demand for the NAND flash storage technology STec provides is growing as companies like Facebook Inc. and Google Inc. rely on it for short-term data storage and users increasingly use mobile devices to access the Internet, said Steven Fox, an analyst at Cross Research.

“The demand for storage is growing rapidly and the demand for solid-state disks is growing quicker than the demand for storage.” said Fox, who has a hold rating on Irvine, California-based Western Digital’s shares.

“Solid state storage in the enterprise will play an increasingly strategic role in the future of Western Digital,” Steve Milligan, Western Digital’s chief executive officer, said in the statement. “This acquisition is one more building block in our strategy to capitalize on the dramatic changes within the storage industry.”

Proxy Fight

The deal is expected to be completed before the end of the year.

Western Digital’s shares fell 2.7 percent to $58.54 at the close in New York, paring its gains this year to 38 percent. STec soared 87 percent to $6.71.

STec had been engaged in a proxy fight with Balch Hill Capital LLC and its affiliates, which together said they own about 9.9 percent of the company’s shares, making them the biggest stakeholder.

They had questioned management’s ability to boost revenue and had sought to have three of its board nominees elected next month at STec’s annual meeting. Simon Michael, general manager at Balch Hill, declined to comment on today’s deal.

To continue reading this article you must be a Bloomberg Professional Service Subscriber.